28 February 2024

TV Ad Dollars Shifting to Web Video

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Online video outlets are beginning to erode television's hold on advertisers.

Major advertisers including MasterCard, Mondelez International and Verizon Wireless have over the past year moved a portion of the money they previously spent on television ads to online outlets, responding to viewers’ increased watching of video online. Furthermore, with online outlets recently unveiling plans to ramp up programming, more shifts appear likely.

Money for online video is "definitely coming out of TV," according to Ben Jankowski, head of global media for MasterCard Inc. That company shifted a small portion of its TV budget to online last year and will increase that shift this year.

Starcom MediaVest, an ad-buying firm, shifted more than $500 million out of TV over the past 12 months, of which around three quarters went to online outlets. The agency, which is owned by Publicis Groupe SA, said it is planning a bigger shift during the recent "upfront" ad sales negotiations with TV networks.

Companies have been putting money into online video ads for years, but until now few had considered moving TV ad dollars there. Instead, it typically came out of their print and display ad budgets. But with video content and audience measurement both improving, marketers have become more comfortable with moving TV dollars.

"For us, it's really about shifting to where audiences are" said Laura Desmond, chief executive of Starcom MediaVest, which buys around $40 billion in ad time and space annually on behalf of clients including Procter & Gamble and Honda. "More and more people are spending time with other channels beyond the broadcast and cable networks," she added.

Nearly 88 million people watched online video daily in March, according to comScore, an increase of 14% over a year earlier. While viewers continue to spend more time watching traditional TV continues, according to Nielsen, many major cable and broadcast networks have seen sharp ratings declines in the past few years.

Up for grabs is the giant pot of money spent by advertisers. Television drew in $66.35 billion in 2013, according to eMarketer, which represents 38.8% of total U.S. ad spending.

Digital media accounted for about 25% of total ad dollars. According to eMarketer’s predictions though, television will remain bigger than digital only until 2018, by which time TV's share of total ad spending will drop to 36.1% while digital – including not only online video but all website and mobile ads – will climb to 36.4%.

Online outlets, however, such as Google’s YouTube, Yahoo, AOL and Microsoft's Xbox, are pushing to speed up that trend and lure away more of television's ad dollars faster by holding their own "upfront" programming presentations for advertisers, called the NewFronts.

How much these outlets can draw from TV budgets in the near future will be determined partly by the spring's upfront ad sales negotiations, which began after 21st Century Fox's Fox network and Comcast’s NBC network launched a week of star-studded presentations of coming new programs.

NBC plans to use the hits "The Voice" and "The Blacklist" as building blocks for its prime-time lineup, which will feature edgy new dramas, such as the comic-book themed "Constantine," as well as a handful of female-oriented comedies like "Unbreakable Kimmy Schmidt," created by Tina Fey.

Ad buyers and Wall Street are expecting the upfront market to be lackluster though. J.P. Morgan said in a note to investors last month that spending commitments for broadcast networks could decline between 2% and 3% while advertising commitments to cable networks could increase roughly 5%.

Wall Street analysts predict that online video will not take a big chunk out of TV commitments this year, but that it could have an impact. At the very least, the threat of online video could be by advertisers as leverage in negotiations so as to hold down the price increase the networks get.

Marketers say major TV networks continue to hold strong appeal because of their ability to draw mass audiences. For instance, the U.S.’s penultimate annual television event, the Super Bowl, can draw up to 100 million viewers.

Still, ad executives are aware that television cannot meet all of their needs. In particular, younger consumers are gravitating to online. According to Nielsen, 30% of online video users are age 18 to 34 while only 21% of TV viewers fall within that range.

"Younger consumers are consuming less TV as a portion of their total media consumption," said Laura Henderson, associate director of communications planning and media at Mondelez, maker of Oreo cookies and Trident gum. The company plans to shift 10% of its global TV ad spending into online video by the end of 2014, adding to a trend that amounted to a double-digit percentage shift in the U.S. last year.

Mondelez is also pushing into online video to find "lighter TV viewers," according to Henderson.

MasterCard's Jankowski says declining broadcast-TV ratings over the past few years were a factor in the credit-card firm's shifting a low- to mid-single digit percentage of its overall TV budget in the U.S. to online video channels such as YouTube and Microsoft last year. He said MasterCard – which spent $81.8 million on TV ads in 2013, according to Kantar Media, an ad-tracking firm owned by WPP PLC –  is likely to boost that by a few more percentage points this year.

Meanwhile, Verizon Wireless, a unit of Verizon Communications Inc., shifted more than 10% of its TV dollars to online video last year with the majority of the dollars going to online ad portals and online video ad exchanges.

One major factor adding to such shifts though is that online allows advertisers to target viewers more precisely.

Also, while measurement is far from perfect, and mobile video consumption is still hard to figure out, analysts and marketers say that advertisers are feeling more comfortable with moving TV dollars as Nielsen and others have begun to offer better measurement of how their TV ads compare with the performance of online video digital ads. This follows out of Google’s reversal of course late last year when it allowed Nielsen to place measurement tags on ads running on YouTube. That agreement "allowed the creek to flow," said Brian Weiser, an analyst with Pivotal Research Group.

Still though, Weiser said that it is not a flood of money, and that advertisers are refraining from moving bigger chunks of their TV budget because of a lack of premium content online.

In Weiser’s view, "programmers are taking baby steps with investing in content," and "if they spend more, they will get more."

This article includes information drawn from research in the Wall Street Journal.

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